The Prelude to Double-Digit Inflation

Nearly all the pieces are now in place for inflation to strike with increasing speed and fury, catching Wall Street by surprise, throwing government policy into turmoil and, at the same time, opening up broad opportunities for investors.

I know. I've seen this movie once before. And the script will forever be ingrained in my mind.

It was 1978. Jimmy Carter was president. Oil prices had been surging for nearly seven years.

Other commodities â including silver, gold and food â were following closely behind.

Wholesale prices, import prices and the price of critical resources were climbing swiftly.

Most important, the Fed's pipe-smoking Chairman Arthur Burns, fearing a chain reaction of financial failures, pumped up the money supply with wild abandon, slashed interest rates â and set the stage for the worst U.S. inflation since the Civil War.

Nearly all the pieces are now in place for inflation to strike with increasing speed and fury, catching Wall Street by surprise, throwing government policy into turmoil and, at the same time, opening up broad opportunities for investors.

I know. I've seen this movie once before. And the script will forever be ingrained in my mind.

It was 1978. Jimmy Carter was president. Oil prices had been surging for nearly seven years.

Other commodities â including silver, gold and food â were following closely behind.

Wholesale prices, import prices and the price of critical resources were climbing swiftly.

Most important, the Fed's pipe-smoking Chairman Arthur Burns, fearing a chain reaction of financial failures, pumped up the money supply with wild abandon, slashed interest rates â and set the stage for the worst U.S. inflation since the Civil War.

It is certainly possible that we could could get accelerating inflation, esp. if oil continues to rise, but the article you are citing is (probably deliberately for sensationalism) avoiding some key fundamental differences between now and then: 1) wages are NOT going up significantly and 2) we have some sectors (electronics, various household goods, etc.) that have been decreasing in price.

Volcker had to stop a spiral of BOTH wage and price spirals and this created a much nastier environment. Consider this: some businesses have some pressure to raise prices because of increasing commodity prices. But, on the flip side, there is little pressure to pay workers more and, in many case, technology and other prices are even decreasing. That's why you're not seeing the kind of very painful double digit inflation that we saw in the 70's.

All of that said, Volcker has been quite critical of Bernancke and Volcker literally saved our country from becoming a Japan. But I think almost all analysts see our current situation as a potentially slow growing cancer rather than an out-of-control malignancy.

In fact, consider this: if oil doubled overnight, it would probably simply push us into a recession, or some would prefer me to say more traditional recession, which would dampen much of any inflationary pressures. The American consumer is simply tapped out and this makes it difficult to have a truly overheated economy.

As I've said many times, mild life-sapping stagflation is the concern now...

"The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession.

Name of the article is:
Numbers Racket: Why the economy is worse than we know KEVIN PHILLIPS / Harper's Magazine v.316, n.1896 1may2008

Quote from achilles28:Hedonics and substitution is pure semantical crap that only spell one thing = eroded living standards for everyone.

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Yes, life in 1974, 1982 or 1990 was so much better for the average worker!!!!!!!!!!! All middle class families had 2 cars, the wifes were wearing Gucci shoes and Louis Vuitton bags and the kids were wasting their parents money on iPhones and drugs.